nep-ifn New Economics Papers
on International Finance
Issue of 2016‒12‒18
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. QE: the story so far By Haldane, Andrew; Roberts-Sklar, Matt; Wieladek, Tomasz; Young, Chris
  2. Modelling Portfolio Capital Flows in a Global Framework: Multilateral Implications of Capital Controls By Boero, Gianna; Mandalinci, Zeyyad; Taylor, Mark P
  3. Capital Flows, Beliefs, and Capital Controls By Rarytska, Olena; Tsyrennikov, Viktor
  4. International Capital Flows: Private v.s. Public By Jing Zhang

  1. By: Haldane, Andrew; Roberts-Sklar, Matt; Wieladek, Tomasz; Young, Chris
    Abstract: In the past decade or so, a number of central banks have purchased assets financed by the creation of central bank reserves as a tool for loosening monetary policy - a policy often known as "quantitative easing" or "QE". The first half of the paper reviews the international evidence on the impact on financial markets and economic activity of this policy. It finds that these central bank balance sheet expansions had a discernible and significant impact on financial markets and the economy. The second half of the paper provides new empirical analysis on the macroeconomic impact of central bank balance sheet expansions, across time and countries. It finds three key results. First, it is only when central bank balance sheet expansions are used as a monetary policy tool that they have a significant macro-economic impact. Second, there is evidence for the US that the effectiveness of QE may vary over time, depending on the state of the economy and liquidity of the financial system. And third, QE can have strong spill-over effects cross-border, acting mainly via financial channels. For example, the impact of US QE on UK economic activity may be as large as the impact on US economic activity.
    Keywords: central bank balance sheet.; QE; Quantitative easing; Unconventional Monetary Policy
    JEL: E43 E44 E52 E58 E6
    Date: 2016–12
  2. By: Boero, Gianna; Mandalinci, Zeyyad; Taylor, Mark P
    Abstract: In the aftermath of the global financial crisis, many emerging market countries resorted to capital controls to tackle the excessive surge of capital inflows. A number of recent research papers have suggested that the imposition of controls may have imposed negative externalities on other countries by deflecting flows. Our aim in the research reported in this paper is to construct a comprehensive global econometric model which captures the dynamic interactions of capital flows with domestic and global fundamentals, and to assess the efficacy of capital controls and potential deflection effects on other countries. The results suggest that capital controls areeffective for some countries in the short run, but have no lasting effects. Moreover, there is only limited evidence of deflection effects for a small number of emerging market countries.
    Keywords: capital controls; emerging markets; Global VAR (GVAR); Portfolio Capital Flows
    JEL: C32 C5 F32 F42 G11
    Date: 2016–12
  3. By: Rarytska, Olena; Tsyrennikov, Viktor
    Abstract: Belief heterogeneity generates speculative cross-border capital flows that are much larger than flows generated by the hedging/insurance motives. We show theoretically that limiting financial trades may gen- erate welfare gains despite inhibiting insurance possibilities. Financial constraints tame speculation forces, limit movements of the net for- eign wealth positions, and thus reduce consumption volatility. This provides a novel justification for capital controls. Simulations indicate that welfare gains from imposing capital con- trols can be substantial, equivalent to a permanent consumption in- crease of up to 4%, or 80 times the cost of business cycles. Controls that activate only during substantial inflows or outflows are preferred to those constantly active, e.g. a transaction tax used by some emerg- ing market economies. Yet, despite improving macroeconomic stability capital controls may unintentionally lead to increased volatility in the domestic financial markets.
    Keywords: international portfolios, capital controls, foreign ex- change intervention, International Relations/Trade, F32,
    Date: 2016–04
  4. By: Jing Zhang (Federal Reserve Bank of Chicago)
    Abstract: We study both empirically and quantitatively the patterns of international capital flows by the private sector and the public sector.
    Date: 2016

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